Heuristics in managerial decision making during company turnaround and uncertainty

Abstract:

The ever-changing business landscape is becoming increasingly uncertain and complex. Negative environmental forces, often uncontrollable by companies, are frequently causing firms to pursue a state of turnaround to navigate out the spiral of decline they unfortunately enter. Managerial decision making is understood to be an important lever that firms possess with potential to enable or disable successful organisational turnaround, driving a business imperative for understanding. Heuristics, often referred to as shortcuts or rules of thumb, have enjoyed growing acceptance in academia as a valuable decision technique to combat uncertainty under decision constraints of time and cost. This research explored the use of heuristics by managerial decision makers during company turnaround, the relationship between heuristics and changes in company environment, and motivating factors for heuristics in conditions of company turnaround. The research was conducted as a qualitative exploratory and quasi-experimental study containing three purposefully designed vignettes prompting a decision to be made, followed by several open ended questions. Data was collected from thirteen semi-structured interviews with Senior Managers in various decision making positions across a firm undergoing turnaround. The use of vignettes to test heuristic use in a qualitative manner contrasts existing computational quantitative studies, contributing to future research in heuristic decision making and environmental influence. Key findings revealed the use of three heuristics, although not dominant, in conditions of turnarounds by managerial decision makers, namely the Take-the-best, Satisficing and Recognition heuristic. However, a blended approach, combining both rational and cognitive decision making, was the preferred approach. Heuristic use was found to be influenced by changes in the company environment and better suited during company turnaround, where uncertainty is evident. The study extends existing factors for heuristics by revealing that comfort level, decision impact, urgency, pressure and strategic importance motivate heuristic use in organisational turnaround. Identified heuristic development methods contribute to existing literature and provides guidance to companies intending to address uncertainty in company turnaround decision environments.